sunny.png
Wednesday September 23rd, 2020 4:13PM

Federal Reserve sees rates near zero at least through 2023

By The Associated Press
Related Articles
  Contact Editor

WASHINGTON (AP) — The Federal Reserve expects to keep its benchmark interest rate pegged near zero at least through 2023 as it strives to accelerate economic growth and drive down the unemployment rate.

The central bank also said Wednesday that it will seek to push inflation above 2% annually. The Fed left its benchmark short-term rate unchanged at nearly zero, where it has been since the pandemic intensified in March.

The Fed's benchmark interest rate influences borrowing costs for homebuyers, credit card users, and businesses. Fed policymakers hope an extended period of low interest rates will encourage more borrowing and spending, though their new policy also carries risks of inflating stock or causing other financial market bubbles.

The Fed’s moves are occurring against the backdrop of an improving yet still weak economy, with hiring slowing and the unemployment rate at 8.4%.

Still, at a virtual conference with reporters following the statement, Fed chair Jay Powell said that the economy has recovered more quickly than the Fed had expected. The Fed updated its forecast for GDP to a decline of 3.7% compared to a June forecast of a 6.5% drop. On employment, the Fed projected an unemployment rate at the end of the year of 7.6% instead of the 9.3% it projected in June.

Still, Powell acknowledged the economic outlook remains highly uncertain and depends heavily on the ability of the U.S. to get control of the pandemic.

“A full economic recovery is unlikely until people are confident that it is safe to re-engage in a wide variety of activities," Powell said.

During his news conference, Powell, as he has in the past, supported more spending by Congress to help the economy recover. Congress is deadlocked on more financial relief because of disagreements on the size of the package between Democrats and Republicans.

“My sense is that more fiscal support is likely to be needed,” Powell said. “There are still roughly 11 million people out of work because of the pandemic.”

The Fed’s statement formalized a change in its policy toward inflation first announced by Powell last month.

The Fed said that that because inflation has mostly fallen below its target of 2% in recent years, Fed policymakers now “will aim to achieve inflation moderately above 2 percent for some time." It also says it will keep rates at nearly zero until “inflation has risen to 2% and is on track to moderately exceed 2% for some time."

The change reflects a growing concern at the Fed that in recessions, inflation often falls far below 2%, but it doesn’t necessarily reach 2% when the economy is expanding. Over time, that means inflation on average falls further from the target. As businesses and consumers come to expect increasingly lower inflation, they act in ways that entrench slower price gains.

The Fed prefers a little inflation because that gives the central bank more room to cut or raise short-term interest rates.

The Fed last month made two other key changes to its strategy framework after its first-ever public review of its policies and tools, which it launched in November 2018.

Powell said last month that the Fed will place greater weight on pushing unemployment lower and will no longer raise interest rates preemptively when the unemployment rate is low to forestall higher inflation. Instead, it will now wait for evidence that prices are rising.

Fed officials have acknowledged that economic models that predict higher inflation when unemployment is very low have been wrong, particularly since the 2008-2009 recession.

The Fed also said last month that its objective to maximize employment is “a broad and inclusive goal.” That language suggests that Fed officials will consider the unemployment rates of Blacks and Hispanics and other disadvantaged groups as well as the overall jobless rate when contemplating interest rate changes, something the Fed has never considered before. Democrats in Congress have introduced legislation that would require the Fed to consider racial inequities as it makes policy decisions.

The Fed also said Wednesday that it will continue purchasing about $120 billion in Treasurys and mortgage-backed securities a month, in an effort to keep longer-term interest rates low. Since March, the Fed has flooded financial markets with cash by making such purchases and its balance sheet has ballooned by about $3 trillion. But with the yield on the 10-year Treasury already at just 0.67%, economists worry that the Fed’s bond purchases will have a limited impact going forward.

Still, the Fed's moves to stabilize financial markets have contributed to the stock market's rally to new highs after plunging in February and March. On Wednesday, stocks got a short boost from the Fed's projections before turning lower. Still, market analysts liked what they heard from the Fed.

“A better economy and a dovish Fed, that is a nice combo,” said Ryan Detrick, chief market strategist for LPL Financial.

On Wednesday, the latest economic report seemed to support Powell's view of an economy on the mend but not fully healthy. The Commerce Department said retail sales rose 0.6% in August, the fourth straight gain but the slowest since sales started growing again in May. The figure suggests that the end of a $600 supplemental weekly unemployment payment weighed on spending.

The global economy is still expected to shrink this year, but by less than previously estimated, according to a report Wednesday from the Organization for Economic Development, an international think tank. The OECD now expects the world economy to shrink by 4.5%, up from an earlier estimate of a 6% contraction, mostly because of better-than-expected recoveries in the United States and China.

___

Martin Crutsinger in Washington and Alex Veiga in Los Angeles contributed.

  • Associated Categories: Associated Press (AP), AP National News, AP Online National News, Top General short headlines, AP Business, AP Business - Economy, AP Business - Financial Markets, AP Business - Industries, AP Business - Financial Services
© Copyright 2020 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
Federal Reserve sees rates near zero at least through 2023
The Federal Reserve expects to keep its benchmark interest rate pegged near zero at least through 2023 as it strives to accelerate economic growth and drive down the unemployment rate
2:27PM ( 3 minutes ago )
Hurricane Sally unleashes flooding along the Gulf Coast
Hurricane Sally has lumbered ashore near Gulf Shores, Alabama, as a Category 2 storm, with top winds of 105 mph
2:25PM ( 5 minutes ago )
Vision 2020: What happens if the US election is contested?
Is it possible the election will be up in the air and we won’t have a president on Inauguration Day: Jan. 20, 2021
2:23PM ( 7 minutes ago )
Associated Press (AP)
Study hints antibody drug may cut COVID-19 hospitalizations
A drug company says that partial results from a study testing an antibody drug give hints that it may help keep mild to moderately ill COVID-19 patients from needing to be hospitalized, a goal no current coronavirus medicine has been able to meet
1:50PM ( 39 minutes ago )
Doubts persist at start of NYC's hybrid school year
New York City’s already-delayed school year has started remotely and will do so in person Monday
1:47PM ( 42 minutes ago )
'Nothing left in the bucket': Wildfire resources run thin
Firefighters battling the West Coast wildfires say this year's blazes are some of the worst they have ever seen
1:38PM ( 52 minutes ago )
AP National News
The Latest: CDC director: Scientific integrity not altered
The director of the CDC told Senate lawmakers that his agency has not altered its scientific publications on the coronavirus
12:26PM ( 2 hours ago )
Yoshihide Suga named Japan's prime minister, succeeding Abe
Japan’s Parliament has elected Yoshihide Suga as prime minister, replacing long-serving leader Shinzo Abe with his right-hand man
12:13PM ( 2 hours ago )
Big Ten changes course, will play fall football after all
Big Ten is going to give fall football a shot after all
12:04PM ( 2 hours ago )
AP Online National News
US charges 5 Chinese citizens in global hacking campaign
The Justice Department has charged five Chinese citizens with hacks targeting more than 100 companies and institutions in the United States and abroad, including social media and video game companies as well as universities and telecommunications providers
12:44PM ( 1 hour ago )
US companies seeking tariff relief faced red tape, delays
Companies seeking relief from President Donald Trump’s taxes on imported steel and aluminum ran into long delays and cumbersome paperwork, a federal watchdog found
12:17PM ( 2 hours ago )
UK to ration COVID-19 testing amid testing failures
U.K. lawmakers have criticized the government’s handling of the COVID-19 testing crisis for a second day as opposition leaders say Prime Minister Boris Johnson lacked a cohesive plan to tackle the virus as the country faces a second wave in the pandemic
12:14PM ( 2 hours ago )
AP Business
Palestinian refugee agency warns of instability amid crisis
The U.N. agency for Palestinian refugees is experiencing a financial crisis that could force it to halt some services to an already impoverished population of more than 5 million people
8:23AM ( 6 hours ago )
EU chief says UK cannot change EU-UK withdrawal agreement
European Commission President Ursula von der Leyen says the United Kingdom cannot unilaterally change the EU-UK bilateral withdrawal agreement without destroying global trust in the country
7:57AM ( 6 hours ago )
Global economic outlook not as bad as expected - OECD
The Organization for Economic Cooperation and Development says that the world’s global economy is not doing as bad as previously expected, especially in the United States and China, but has still suffered an unprecedented drop
7:48AM ( 6 hours ago )
AP Business - Economy
5M people infected, India's virus outbreak still soaring
India’s confirmed coronavirus infections have passed 5 million and are still soaring and testing the feeble health care system in tens of thousands of impoverished villages
5:27AM ( 9 hours ago )
India surpasses 5 million coronavirus cases, 82,066 deaths
India’s coronavirus confirmed cases have crossed 5 million and are still soaring, testing the feeble health care system in tens of thousands of impoverished towns and villages
12:12AM ( 14 hours ago )
The Latest: UN assembly head warns of pandemic unilateralism
The new president of the U.N. General Assembly is warning that unilateralism will only strengthen the COVID-19 pandemic and is calling for a new commitment to global cooperation including on the fair and equitable distribution of vaccines
10:18PM ( 16 hours ago )
AP Business - Industries
US stocks rise again as tech makes up more lost ground
Wall Street is strengthening again on Tuesday as big technology stocks wrest back more of their losses from their sudden belly flop earlier this month
12:47PM ( 1 day ago )
Wall Street opens higher, following broad gains overseas
Stocks are opening higher on Wall Street, building on gains made over the previous two days
9:45AM ( 1 day ago )
Federal Reserve to meet after sharp changes to its outlook
Federal Reserve policymakers will meet this week for the first time since they significantly revised the Fed’s operating framework in ways that will likely keep short-term interest rates near zero for years to come
6:54AM ( 1 day ago )
AP Business - Financial Services
Hurricane Sally unleashes flooding along the Gulf Coast
Hurricane Sally has lumbered ashore near Gulf Shores, Alabama, as a Category 2 storm, with top winds of 105 mph
2:25PM ( 5 minutes ago )
Vision 2020: What happens if the US election is contested?
Is it possible the election will be up in the air and we won’t have a president on Inauguration Day: Jan. 20, 2021
2:23PM ( 8 minutes ago )
The Latest: Sally weakens to tropical storm on Gulf Coast
Sally has weakened to a tropical storm but the Gulf Coast region still faces issues from the slow-moving storm’s drenching rains and flooding
2:14PM ( 16 minutes ago )
Leave of absence for health official in furor over meddling
The Trump administration health official accused of political meddling in the government’s coronanvirus response is taking a 60-day leave of absence
2:08PM ( 22 minutes ago )
Federal Reserve adjusts inflation target, rate unchanged
The Federal Reserve adjusted its inflation target to seek price increases above 2% annually, a move that will likely keep interest rates low for years to come
2:04PM ( 27 minutes ago )